The credit crunch

by Russ Roberts on November 14, 2008

in Financial Markets

Alex (and others) have been debating whether there’s a credit crunch. They are using data and anecdotes to measure whether credit is flowing or not.

I think what people are missing (or at least I haven’t noticed) is that both borrowers and lenders are dramatically less interested in lending and borrowing. Think of it as the supply and demand curves moving leftward. Lenders are nervous about most borrowers ability to pay. Borrowers are worried about that too. So not surprisingly, there isn’t a lot of borrowing and lending going on at either the personal or commercial level. It has become a symptom rather than a cause. So the markets not "frozen" or "locked up." It’s just a lot smaller.

Another way to say it. If you have good credit, I think you can get a car loan. But a lot fewer people (with both good and bad credit) want to buy cars. So you see fewer loans.

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